Process for determining object level profitability

ABSTRACT

A process for determining object level profitability includes the steps of (1) preparing information to be accessed electronically, (2) establishing rules for processing the prepared information, (3) calculating at least one marginal value of profit using established rules as applied to a selected set of prepared information, and (4) combining the at least one marginal value of profit and fully absorbed value of profit adjustment to create a measure for object level profitability. The inventive process gives management profit measures tailored to its need for accurate decision oriented profit information required to manage a large organization based on profit measurement.

RELATED APPLICATION

This application is a continuation application of U.S. patentapplication Ser. No. 09/545,628, filed Apr. 7, 2000, which claimspriority from provisional patent application Ser. No. 60/128,769, filedApr. 9, 1999.

BACKGROUND OF THE INVENTION

The process of measuring profit is an important business activity.Profit measures are the primary basis for understanding financialperformance and value creation in a business. Once a business is ownedpublicly, an independent review of a firm's financial position becomes amandatory process well known as measuring profit according to “generallyaccepted accounting principles” (GAAP.) While these standards andregulations are adequate for an external view of a company's financialcondition, the measurement of profit contribution amongst the businessis required for proper management of the franchise. Internal financialperformance measurement is especially complex for a multi-product,multi-location, and/or large customer based businesses. The use ofinternal financial performance measures drives most businesses planningprocesses, management incentive processes and control processes. Manybusinesses have found that internal profit measures can be consistentwith the external financial statement measures. These businessesimplement internal accounting processes consistent with externalmeasures using common metrical units similar to a GAAP FinancialStatement presentation—a consistent metric or “yard stick” (i.e.numerically the sum-of-the-profit-parts equals the whole company'sprofit according to GAAP.)

Many businesses today are struggling to accurately measure profitcontribution at a level necessary to accurately measure profitcontribution of individual customer interactions. The reason for dilemmais found in the manner in which generally accepted accounting principlesare applied. Fundamental accounting theory takes lumpy cash flows thatoccur in the day-to-day management of a business conducted with itscustomers and transform them into smoothed income or expense items(known as accruals.) At the end of every profit reporting cycle theseincome and expense items are consolidated into a period end balancesheet and income statements. Reports on the state of the business canthen be presented by accountants in formats necessary for theindependence of ownership and management that is the basis of capitalmarkets. Indeed, most businesses today would call its accounting processcritical for survival. Unfortunately, the complexity of maintaining anaccurate financial accounting process has obscured the measurement ofprofit contribution at a very detailed level. While the aggregate cashflows of a large company are relatively stable the individualcustomer-to-business cash flows are very volatile. Accounting practiceto date has been comfortable with using aggregate cash flow informationfor the accrual accounting process (10), as illustrated in FIG. 1. Theaccounting process based on aggregates has lead to blindness bybusinesses of incremental customer profit contribution measuresnecessary to implement customer level decision making, particularly inlarge businesses with many millions of customers.

General Ledgers (double entry book keeping systems) (11) were earlyadapters of automated data processing solutions due to the match betweencomputing capabilities of computers and the execution of the accountingprocess. The benefit, from reduced cost for accounting processes easilyjustified large expenditures in information processing technology, bothin hardware and in software development. The complexity of today'sgeneral ledger applications and the age of these systems have retardedthe innovation of new automated techniques taking advantage oftechnological advances in massively parallel computing capability.

References describing generally accepted accounting principles andfinancial performance measurement procedures are listed below, and areincorporated by reference herein:

The money market/, Marcia Stigum. 3rd ed. Homewood, III.: DowJones-Irwin, c1990.

Money market and bond calculations/, Marcia Stigum and Franklin L.Robinson. Chicago: Irwin Professional Publ., c1996.

Money market calculations: yields, break-evens, and arbitrage/, MarciaStigum, in collaboration with John Mann. Homewood, III.: DowJones-Irwin, c1981.

The money market: myth, reality, and practice/, Marcia Stigum. Homewood,Ill.: Dow Jones-Irwin, c1978

Quantifying the market risk premium phenomenon for investment decisionmaking: Sep. 26-27, 1989, New York, N.Y./, Keith P. Ambachtsheer . . .[et al.]; edited by William F. Sharpe and Katrina F. Sherrerd; sponsoredby the Institute of Chartered Financial Analysts. Charlottesville, Va.:CFA: May be ordered from Association for Investment Management andResearch, c1990

Fundamentals of investments/, Gordon J.

Alexander, William F. Sharpe, Jeffery V. Bailey. 2nd ed. EnglewoodCliffs, N.J.: Prentice Hall, c1993.

Microeconomics/, Richard G. Lipsey. [et al.]. 9th ed. New York: Harper &Row, c1990.

Economics of the firm: theory and practice/Arthur A. Thompson, Jr., JohnP. Formby. 6th ed. Englewood Cliffs, N.J.:Prentice Hall, c1993.

The FASB conceptual framework project, 1973-1985: an analysis/, PelhamGore. Manchester, UK; New York: Manchester University Press; New York,N.Y., USA: Distributed exclusively in the USA and Canada by St. Martin'sPress, c1992.

Statement of financial accounting standards no. 5: impact on corporaterisk and insurance management/, Robert C. Goshay. Stamford, Conn.:Financial Accounting Standards Board of the Financial AccountingFoundation, 1978.

Common cents: the ABC performance breakthrough: how to succeed withactivity-based costing/, Peter B. B. Turney. Hillsboro, Oreg.: CostTechnology, 1991.

A guide to the SQL standard; a user's guide to the standard relationallanguage SQL/Date, C. J.:Addison-Wesley Pub. Co., 1987.

Accountants SEC practice manual, Kellogg, Howard L.:Commerce ClearingHouse, 1971.

Risk theory; the stochastic basis of insurance/, Beard, R. E. (RobertEric): 3rd ed., Chapman and Hall, 1984.

Practical risk theory for actuaries/, Daykin, C. D. (Chris D.): 1st ed.,Chapman & Hall, 1994.

Actuarial mathematics/:2nd ed., Society of Actuaries, 1997.

Objectives and concepts underlying financial statements/United Nations,1989.

Cost accounting for factory automation/National Association ofAccountants, 1987.

Interest rate risk models:; theory and practice/: Glenlake Publ.Co.—Fitzroy Dearborn, 1997.

Economic analysis for management decisions, Elliott, Jan Walter: R. D.Irwin, 1973.

Microeconomic theory/, Ferguson, C. E. (Charles E.): 4th ed. R. D.Irwin, 1975.

Planning and measurement in your organization of the future/, Sink, D.Scott.: Industrial Engineering and Management Press, 1989.

Economics/, Paul A. Samuelson, William D.

Nordhaus. 16th ed. Boston, Mass.: Irwin/McGraw-Hill, c1998.

Setting intercorporate pricing policies/, Business InternationalCorporation, New York: Business International Corporation, 1973.

Controversies on the theory of the firm, overhead allocation, andtransfer pricing/, Murry C. Wells, editor. New York: Arno Press, 1980.

The transfer pricing problem: a theory for practice/, Robert G. Eccles.Lexington, Mass.: Lexington Books, 1985.

Transfer pricing/, Clive R. Emmanuel and Messaoud Mehafdi. London; SanDiego: Academic Press, 1994.

Internal transfer pricing of bank funds/, by Valerie Giardini. RollingMeadows, III.: Bank Administration Institute, 1983.

Transfer pricing: economic, managerial, and accounting principles/, byClark J. Chandler . . . [et al.] Washington, D.C.: Tax Management, Inc.,1995.

International intracorporate pricing; non-American systems and views,Jeffrey S. Arpan. New York, Praeger Publishers, 1971.

There remains, however, a need to resolve profit measures at a detailedlevel without using analytical models or statistical extrapolation. Sucha process should utilize rule driven and data base measurement processeswhich will give large scale businesses a lower cost of maintenance and atechnologically scalable tool to measure profit at a level of precisionor resolution not possible in prior financial performance measurementprocesses. The present invention fulfills this need and provides otherrelated advantages.

SUMMARY OF THE INVENTION

Prior approaches to management's desire for an accurate measure ofindividual decisions (incremental or marginal) profit impact have beensolved by automating the accounting process for implementing accountingmethods. Cash flows are transformed into two parts, a debit part orcredit part, according to an accounting rule. Other non-cash accountingrules are implemented to create “accrual” debits and credits smoothingincome and expenses and adjusting for future contingencies. (seeManagement Accounting Theory books or any source of accounting theory,where the balance sheet equation and the consolidation process, thecombination of flows and stocks of financial data, are developed.) Thefirst large scale use of automated computing technology is frequentlyfound to be the automation of the financial control or accountingprocesses, since it is easy to develop software to implement accountancyrules and there were large benefits in staff productivity easilyobservable. For businesses to observe marginal profit contributions itwas necessary to use accounting information and make reasoned conclusionon how to apportion or extrapolate this information into incrementalcustomer, product or organizational profit detail. (See FIG. 1)

What these methods of profit measurement lack are the adequate level ofdetail to measure an individual or incremental decision's impact onprofit. To gain this new level of profit resolution this invention isdesigned to use micro profit measurement rules applied at a granularlevel consistent with standard accounting practice using a combinationof actuarial science and mathematical set theory. The invention isdesigned to utilize massively parallel computing operations usingrelational database management techniques enabling profit measurement ata level not available today in a large individual customer scalebusiness. This invention does this through a consistent application ofmeasures to a class of business entities which represent the smallestcommon component of profit measurement desired—the Profit Object.

The invention's method of apportionment of non-object related profitmeasures specifies a method which will not change the ordinal orcardinal profit contribution ranking when only marginal profit measuresare counted. This specification is what makes it possible to applymarginal measurement rules (see Micro-economic theory literature) withmacro economic principles; namely the sum-of-the-parts equals the wholecriterion which is the basis of financial accounting theory andpractice.

The invention decomposes profit measurement analytical calculations intofive classifications:

1. Marginal profit measures associated with use of the business' balancesheet resources;2. Marginal measures of non-balance oriented revenues;3. Marginal cost measures;4. Marginal measures of expected costs or revenues; and,5. Apportioned cost measures.

This classification provides for additive profit measures across thefive components. The calculation process is designed to be independentacross classes 1, 2, 3, & 4 above with the addition of class five topreserve sum-of-the-parts integrity without simultaneous calculationstypically found in profit measurement processes. When all five profitmeasures are summed at the lowest level of profit detail, a consistentset of profit values for all types of aggregations are possible—allprofit measurement then originates from the same point in a profitdatabase. The simultaneous use of these five analytical frameworks makespossible a detailed level of profit calculation consistent with GAAP.

In particular, the present invention relates to a process fordetermining object level profitability. In its basic form the processincludes the steps of:

1. Preparing information to be accessed electronically;2. Establishing rules for processing the prepared information;3. Calculating at least one marginal value of profit using establishedrules as applied to a selected set of prepared information;4. Calculating a fully absorbed value of profit adjustment usingestablished rules as applied to the selected set of preparedinformation; and,5. Combining the at least one marginal value of profit and fullyabsorbed value of profit adjustment to create a measure for object levelof profitability.

More specifically in the step of preparing information to be accessedelectronically, the database is prepared, object attributes areextracted, conditioned and loaded into the database, and financialstatement attributes are extracted, conditioned and loaded into thedatabase. If desired the step may also include extracting, conditioningand loading the event attributes into the database, and calculatingfunds transfer treatment rates.

In the step of establishing for processing the prepared information forrule establishment providing the information necessary to select objectsand perform the correct profit calculus is accomplished. The step ofcalculating at least one marginal value of profit using establishedrules as applied to a selected set of prepared information includescalculating net interest, other revenue, direct expense, and/orprovision for the selected set of prepared information. Net Interest(NI) is the summation of interest income, value of funds provided andearnings on equity funds used less the sum of interest expense and costof funds used. Other Revenues (OR) is a measure of profit contributionfrom non-interest related sources. Direct Expense (DE) is the profitvalue reduction due to marginal resource consumption by the object.Provisioning (P) is the expected profit value adjustment for futureoutcomes related to the object.

The step of fully absorbed profit adjustment, Indirect Expense (IE), isan apportioned profit value adjustment for all non-object relatedresource consumption by the business.

In the step of combining the five profit values, NI+OR−DE−P−IE, may beadjusted for taxes and/or object economic value.

The foregoing elements of the invention, which have been explained at amicro elemental level can be advantageously employed in massive amountsand parallel process power. For example, in the macro perspective of theinvention the basic steps can be utilized.

The present invention gives management profit measures tailored to itsneed for accurate decision oriented profit information required tomanage a large organization based on profit measurement. This inventiongives businesses the ability to resolve profit measures at a level ofdetail necessary for all types of application of profit orientedperformance measurement.

Other features and advantages of the present invention will becomeapparent from the following more detailed description, taken inconjunction with the accompanying drawings which illustrated, by way ofexample, the principles of the invention.

BRIEF DESCRIPTION OF THE DRAWINGS

The accompanying drawings illustrate the invention. In such drawings:

FIG. 1 shows existing profit calculation process flow.

FIG. 2 shows analytical processing relationships.

FIG. 3 shows the invention's information flow.

FIG. 4 shows the invention's data relationships.

FIG. 5 shows the invention's process flow.

FIG. 6 shows the invention's database preparation process step detail.

FIG. 7 shows the rule maintenance process.

FIG. 8 shows the net interest measuring process.

FIG. 9 shows the other revenue measuring process.

FIG. 10 shows the direct expense measuring process.

FIG. 11 shows the provision measuring process.

FIG. 12 shows the indirect expense measuring process.

FIG. 13 shows the profit component aggregation and adjustment process.

FIG. 14 shows a partial relational database schema for an airlineindustry example.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT

As shown in the accompanying drawings for purposes of illustration, thepresent invention is concerned with a detail profit metric (DPM)designed to be a computer database application (i.e. software) forprofitability measurement. DPM's profit measurement system isfundamentally different from the common profit measurement system usedby regulators and public accountancy—yet, it is consistent withgenerally accepted accounting principles.

With reference now to FIGS. 2 and 3, the invention is designed toutilize massively parallel computing operations using relationaldatabase management techniques enabling profit measurement at a levelnot available today in a large individual customer scale business. Thisinvention does this through a consistent application of measures (27) toa class of business entities (32) which represent the smallest commoncomponent of profit measurement desired—the Profit Object.

The invention's method of apportionment of non-object related profitmeasures (34) specifies a method which will not change the ordinal orcardinal profit contribution ranking when only marginal profit measuresare counted. This specification is what makes it possible to applymarginal measurement rules with macro economic principles; namely thesum-of-the-parts equals the whole criterion which is the basis offinancial accounting theory and practice.

As shown in FIG. 2, the invention decomposes profit measurementanalytical calculations into five classifications:

1. Marginal profit measures associated with use of the business' balancesheet resources, also referred to as funds transfer pricing (21);2. Marginal measures of non-balance oriented revenues, also referred toas non-interest revenues (23);3. Marginal cost measures, also referred to as event costing (22);4. Marginal measures of expected costs or revenues, also referred to asprovisioning (24); and,5. Apportioned cost measures and indirect costing, in accordance with anallocation model of the present invention (26).

This classification provides for additive profit measures across thefive components. The calculation process is designed to be independentacross classes 1, 2, 3, & 4 above with the addition of class five topreserve sum-of-the-parts integrity without simultaneous calculationstypically found in profit measurement processes. When all five profitmeasures (49) are summed at the lowest level of profit detail, aconsistent set of profit values for all types of aggregations (30) arepossible—all profit measurement then originates from the same point in aprofit database. The simultaneous use of these five analyticalframeworks makes possible a detailed level of profit calculationconsistent with GAAP.

FIG. 3 illustrates DPM data flow: where systems of record (SOR's) (31)data source object (32) and object oriented event (33) data; whereGeneral Ledger data sources apportionment data; and, where event andgeneral ledger data are used with activity based costs (35). DPM isbased on object level detail of cash flows, customer events andmanagement profit allocations of profit arising from non-customerrelated events. More particularly, DPM is based on object level detaileddata extracted from the SOR's (31), customer object oriented event data(33) and non-SOR Apportionments (34). DPM provides both marginally (20)and fully absorbed profit measures (25), something traditional “generalledger” based profit accounting systems cannot accomplish due toreliance on aggregate debit and credit amounts (10). The differences inmeasures are directly observable in comparisons of detailed customer(13), product (14) or organizational (15) profit values calculated usingprior art (12) methods with profit values derived using aggregations(30) of object data, per FIG. 3.

More specifically, with reference to FIG. 4, in the step of preparinginformation to be input (40) to be accessed electronically, a databaseis prepared. Object attributes are extracted, conditioned, and loadedinto the database (43), and financial statement attributes areextracted, conditioned and loaded into the database (45). If desired,the method may also include extracting, conditioning and loading theevent attributes into the database (44) and calculating funds transfertreatment rates and activity based costing rates (46).

In the step of establishing for processing (41) the prepared informationon how to select objects and perform the correct profit calculus rulemapping (47) is accomplished. The step of calculating (48) at least onemarginal value of profit using established rules as applied to aselected set of prepared information includes calculating net interest(NI), other revenue (OR), direct expense (DE), and/or provision for theselected set of prepared information. Provisioning (P) is expectedprofit value adjustment for future outcomes related to the object. Thestep of fully absorbed profit adjustment, indirect expense (IE), is anapportioned profit value adjustment for a non-object related resourceconsumption by the business. The foregoing elements of the invention,which have been explained at a micro-elemental level, can beadvantageously employed in massive and parallel processing power (41).The present invention gives businesses the ability to resolve profitmeasures at a level of detail (49) necessary for all types ofapplications of profit oriented performance measurement or detailedprofitability data as an output (42) for enabling aggregation (30) to aparticular customer, product or organization within a business.

The following is a definition of the inputs (attributes or measurementparameters), the method of processing and the output of the DPM process.

DEFINITIONS Object Attributes (43)

These are data about the object being measured. Different businesseshave different objects of detailed profit measurement. Examples ofprofit measurement objects include an airline using “seat” as the profitobject, an insurance company using a “policy” object or a bank using an“account” object—these objects represent the lowest level of detailrequired to support consistent internal multi-dimensional internalprofit analyses. Types of data attributes associated with these objectsinclude: balances, rates (or interest accrued), product identification,exposures, expected loss frequency, and various dates (e.g., start,finish, rate reset, last payment, next payment, life, etc.)

Event Attributes (44)

These data are about events (a resource consuming activity) related tothe object being measured. Data found here include objectidentification, transaction amounts, quantities, event location, eventtime, counter-party identification, event type (e.g., payments, interestpaid or earned, purchases, refunds, etc.) At least one of theseattributes must relate the event to at least one Object.

Financial Statement Attributes (45)

These are data about the company's financial statement. Data found hereinclude balance sheet and profit statement amounts usually aggregated bythe legal or management entities that own a group of objects beingmeasured. These data will be current accounting period either actual orplanned.

Profit Measurement Parameters (46)

These data include parameter values necessary to perform the object orevent level profit calculations. The major classifications of these dataare:

-   -   Funds valuing rates (“Treatment Rates”)—DPM's funds transfer        pricing method uses maturity opportunity rates used in valuing        each object's marginal use or source of internal funds (balance        sheet resources).    -   Unit Costs—DPM's Direct Expense calculations require unit cost        parameters. DPM can calculate unit costs, when unit cost data        are not available; in these instances, if the total cost is        provided a financial statement attribute and then unit cost is        derived by dividing total cost by an appropriate attribute        quantity amount.    -   Allocated Amounts—In both Other Revenue and Indirect Expense        calculations this amount is apportioned amongst all objects in a        group.    -   Miscellaneous Calculation Values—Some of DPM's calculations        require non-system of record values. For example, number of days        in profit measurement period or equity allocation weighting.        These values are known as “modeling” parameters.    -   Amortization Parameters—Interest amortization requires an        interest rate and expected life attributes. Straight line and        declining balance methods of amortization require expected life        values.    -   Expected Profit Adjustment Measurement Parameters—Provision        calculations require appropriate attributes, such as: expected        loss rates, reserve percentages, exposure factors, recovery        rates, default probabilities and collection costs.    -   Tax Rates—Tax rates are required for after-tax profit        calculation. DPM is designed to calculate pre-tax income on a        taxable equivalent basis (where an single effective tax rate is        all that is required to transform pre-tax income into after tax        earnings.)

Profit Measurement Rule Specification

DPM's processing approach is to combine profit measurement techniqueswith (non-modeled) data and calculation parameters. Each application ofthis calculus is called a rule (47). DPM is designed to allow the userthe freedom to associate a group of objects with a rule and to useobject-level information in combination with rule parameters tocalculate profit values. The DPM invention uses profit measurement rulesseparate from, but applied to, object data and the use of relationaldatabase concepts, giving the user flexibility in both the assignmentand depth of definition of measurement rules and measurement resolution.Use of this method is especially suited for massively parallel computingtechnology where linear scaleable capital investment in processingtechnology is possible vis-à-vis object and event count and rulecomplexity.

The types of calculation (Rule types) are:

-   -   Funds Treatment—Every object with cash flows affecting a        financial statement's balance sheet requires a method of valuing        an object's use or source of funds. The common name for this        approach to valuing is know as “Matched Maturity Funds Transfer        Pricing.” DPM uses a canonical representation an object's        funding characteristics for computational performance. DPM's        methodology requires effective yield adjustment to eliminate the        allocation of interest payable/receivable required by GAAP. A        value, based on effective yield adjusted market price (the yield        curve), is then determined by DPM for each instance that        requires an interest rate transfer pricing to calculate an        object's marginal Net Interest (NI).    -   Equity Allocation—In order for precise net interest revenue or        economic value adjusting calculations the amount of equity funds        required at an object level must be determined. DPM's equity        allocation to the object level calculations may use any of the        following methods: simple ratios; regulatory definitions;        economic allocations based on econometric modeling (see book on        Modern Portfolio Theory) methodologies; or, as statistically        defined allocations.    -   Balance Sheet Allocations—Complete calculation of Net Interest        may require an object level allocation of some financial        statement balance sheet amounts.    -   Apportionment—In Other Revenue, Provision and Indirect Expense        calculations are applied at the object level using Financial        Statement Attributes which are not related directly to an        object. These profit adjustments are made so that the sum of all        object profit equals the whole enterprise's profit—an important        property of DPM's output. Accountants refer to this profit        measurement technique as “full allocation of profit.” DPM's        approach is to pool indirect costs and revenues and then        apportion them. Apportionment rules specify how the pool is        completely allocated to appropriate objects. DPM uses a specific        closed form (mathematical formula that require only information        known in the current period and no iterative computation)        allocation rules.    -   Amortization—Some types of income or expense are deferred or        accrued over multiple periods including and subsequent to the        current accounting period. This is common to accrual accounting        methods used in financial statement presentation and give rise        to timing differences between cash flows and their related        profit as presented in a financial statement in any accounting        period. Since DPM is designed to mirror a financial statement's        profit measure it must support deferral and accrual accounting        principles. Amortization methods are included in DPM to reflect        these GAAP concepts. DPM's amortization methods include:        interest method of amortization (used for interest income and        expense accruals and for deferral of fees that are in lieu of        interest); and, straight line or declining balance amortization        methods (used for cost or income deferrals and capitalized        investment depreciation.)    -   Other Revenue Pricing—In situations where object and event        activity can be used to derive object level income or fees DPM        provides for the calculation of these drivers of profitability        in Other Revenue profit calculations. These calculations take        the mathematical form of a linear combination of event or object        values and modeled coefficients.    -   Direct Expense—Calculation of object profit adjustment due to        object related activity requires rules that take the form of        linear combinations of event or object values and modeled        coefficients.    -   Indirect Expense—In situations where expense apportionment or        amortization amounts are aggregated the user may want different        rules applied depending on the path (or dimension) of        aggregation. These rules allow for multiple profit calculations        rules to be applied to derive multiple object level indirect        expense amounts.    -   Provision—Adjusting current profit for expected future value        changes is known as “actuarial” provisioning. The technique is        well known by the financial industry's accounting practice. DPM        applies actuarial based methods in its object level profit        calculations where the Provision pre-adjusts profit for        contingent or known exposures to future profit.    -   Taxable Equivalent Gross-up—Profit is usually an after-tax        measure. Some events or portions of some object profit may be        excluded from normal taxation. DPM's approach is to adjust these        pre-tax values so that a singular tax rate can be used to        convert pre-tax profit into after-tax values, known as taxable        equivalent adjustment. For the purpose of the remaining detailed        description all profit and loss profit measures are tax        equivalent amounts (e.g., TEG * Amount.) These rules use object        and event attributes to drive an adjustment for each of the five        classes of profit amounts to a taxable equivalent basis.    -   Interest Yield Adjustments—Since DPM can derive profit for any        length of accounting period from daily to annual, the adjustment        of cash interest payments and the financial statement's accrual        or smoothed representation of interest related Profit, DPM        requires a method for converting cash interest amounts to        financial statement accrual amounts. DPM implements the        mathematical concept of “effective interest rate” conversion to        accomplish this type of calculation.

Before the calculation rules can be applied at the object or event levela calculation rule must be associated with an object, designating themethods DPM will use to calculate components of profit at the objectlevel. An object grouping is designed to associate objects having commonand defined set of object attributes for similar processing (note that agroup may consist of one object). The association of a group of objectswith a calculation rule is referred here as a Rule Map (47).

Inheritance Functionality

In nature the concept of inheritance is where a descendant receivesproperties of its predecessors, in computer science inheritance isdefined in “Object Oriented” software development theory as the abilityto increase function without loss of function using the same data. InDPM the concept of inheritance is applied and in essence it means thatan implementation can change Rules (change profit calculus) withoutloosing any profit measurement capabilities of the preceding state(s).This feature allows DPM users a unique ability to apply techniques ofdiffering levels of sophistication to different sets of objectsaccording to the trade-off between the value of more accurateobject-focused profit measures and the cost of obtaining and populatingdata and maintaining Rule Maps.

The DPM system is designed for Rules to be applied to any object withoutloss of integrity of output. This design feature allows the user toincrementally migrate objects to increased measurement precision asjustified. This valuable piecewise increase in functionality is possibledue to DPM's combination of rules and data in a mathematical settheoretic framework (41). This approach allows for a relational databasemanagement system implementation (42). It is nearly impossible developand maintain procedural based software with as much flexibility and withthe capability to simultaneously support the number of calculationpermutations required by DPM.

Restatement Functionality

Since DPM is a rule based system the ability to restate prior period'sProfit calculations are systematically possible providing historicaldata exists. DPM's design of object level profit measurement enables aunique historical profit restatement capability. Three features of DPM'srestatement capability are:

-   1. Produces a mathematically consistent time series (i.e. no    measurement bias) of object level Profit. DPM restatement    functionality is designed to apply the same Rules to all available    historical object or event level data.-   2. DPM's restatement functionality preserves object accrual    integrity when the object history is restated for different length    accounting periods. Implementations of daily, weekly, monthly,    quarterly, semi-annual, or annual profit calculations and mixing    different periodicity in historical data without loss of analytical    integrity.-   3. Capable of object's profit history restatement. If a DPM user    changes Rules or Rule Maps and/or changes the way a subset of    object's Profit are calculated and if the historical data is    available per the new set of Rules then the user can restate    historical profit measures for these subset of objects.

Processing (see FIG. 5)

With reference to FIG. 5, the database is first populated (50). Rulesare maintained (51), as will be more fully discussed herein, and the NI,OR, DE, and P are calculated (52-55). Next, the IE is calculated (56) toarrive at a calculation of the object profitability (57). This processis repeated for all objects. After the last object (58), the process isfinished as the detailed profitability database is obtained. FIGS. 6-13describe in more detail the steps taken in FIG. 5 in accordance with thepresent invention.

1. Populate Database (see FIG. 6)

Perform standard database administration actions to initialize data forthe required calculations:

1. Perform database Initialization (60)2. Extract, condition & load object attributes (61)3. Extract, condition & load event attributes (62)4. Extract, condition & load financial statement attributes (63)5. Calculate and populate NI treatment rate attributes (64).

2. Maintain Object Groups and Rule Maps (See FIG. 7)

Populate or edit Rule parameters necessary to perform calculations.Rules definition is by association of specific, non-iterativecalculation, as described below, a set of object or event attributesdefined as a data filter (see Relational Data Base Management Systemtextbooks). Rules have two pieces:

1. Parameters to drive the object selection or data filter forcalculations (70); and,2. Parameters specific to the appropriate calculation methodology (71).

An easy-to-use graphical user interface can be used to maintain thesedata for all rules (72).

The following processing steps, Steps 3 through 6 perform object andevent level profit calculations. Steps 3, 4, 5, and 6 can be processedindependently; step 7 requires values derived in step 3, 4, 5, and 6 andtherefore occurs sequentially.

3. Calculate Net Interest for All Objects (see FIG. 8)

Net Interest is:

NI=Interest Income−Cost of Funds+Value of Funds−Interest Expense+Earningon Allocated Equity

Correct interest rates for calculation of interest income or expensedepend on the length of the profit measurement period. Using actuarialmathematical techniques the bookkeeping required by GAAP for interestreceivables and Payables can be avoided in NI calculus. A knowntechnique (see M Stigum, Money Markets) to accomplish this adjustmentfor profit measurement according to GAAP (i.e. accruals) the followingcalculation is used to convert interest rates:

Let

-   -   r_(new)=annualized rate with new compounding factor    -   r=annualized rate with old compounding factor    -   m=number of old compounding periods per year    -   n=number of new compounding periods per year

Then

$r_{new} = {\left\lbrack {\left( {1 + \frac{r}{m}} \right)^{m/r} - 1} \right\rbrack*n}$

NI Calculation Rule Type I

The object balance is either an asset or a liability amount for Type Icalculation.

Let

-   -   AAB(o_(i))=Average Asset Balance of the object o_(i)    -   ALB(o_(i))=Average Liability Balance of the object o_(i)    -   rate_(asset)(o_(i))=Effective interest rate for object o_(i) as        an asset balance    -   rate_(liability)(o_(i))=Effective interest rate for object o_(i)        as a liability balance    -   Rt=Treatment rate based on the identified treatment for the        object's product attributes    -   Int Inc(o_(i))=Interest Income of object o_(i)    -   COF(o_(i))=Cost of funds used by object o_(i)    -   Int Exp(o_(i))=Interest Expense for object o_(i)    -   VOF(o_(i))=Value of funds provided by object o_(i)

Then,

Int Inc(o _(i))=AAB (o _(i))*rate_(asset)(o _(i))

-   -   {Compute only if object attribute doesn't exist}

COF(o _(i))=AAB(o _(i))*Rt

Int Exp(o _(i))=ALB(o _(i))*rate_(liability)(o _(i))

-   -   {Compute only if object attribute doesn't exist}

VOF(o _(i))=ALB(o _(i))*Rt

NI Calculation Rule Type II (81)

Let

-   -   AB_((c,t))(o_(i))=Average Balances of the object o_(i)    -   rate_((c,t))(o_(i))=Effective interest rate for the        corresponding balance asset or liability    -   Rt(o)=Object o's product type/group as needed to identify        treatment rate    -   R_((c,t))(pt(o))=Rate (treatment rate) for objects of this        product type/group, given the balance class, and tier    -   Int Inc(o_(i))=Interest Income of object o_(i)    -   COF(o_(i))=Cost of funds used by object o_(i)    -   Int Exp(o_(i))=Interest Expense for object o_(i)    -   VOF(o_(i))=Value of funds provided by object o_(i)

Then, where summations are over the possible balance variables (class,tier) for the object,

${{IntInc}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*{rate}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}}$

-   -   {calculate only if object attribute doesn't exist}

${{COF}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*R_{({{{asset}\mspace{14mu} c},t})}{R_{({c,t})}\left( {{pt}(o)} \right)}}}$${{IntExp}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}*{{rate}_{({{{liability}\mspace{20mu} c},t})}\left( o_{i} \right)}}}$

-   -   {calculate only if object attribute doesn't exist}

${{VOF}\left( o_{i\;} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}*R_{({{{liability}\mspace{20mu} c},t})}{R_{({c,t})}\left( {{pt}(o)} \right)}}}$

Allocated Balances

Let

-   -   Total Amount=Balance Sheet amount to be allocated to object    -   Rule=Rule for allocating Amount        Then, DPM calculates the allocation to object o to determine the        allocated balance:    -   B(o_(i))=Rule applied to (Total Amount)        -   =The Allocated Balance            Treat this balance as any one of the average balances            associated with the object, where class is specified by            users, tier is “allocated”. Thus, B_(i)(o_(i)) is one of the            AB_((c,t))(o_(i)) defined above.

NI Calculation Rule Type III (82)

Let

-   -   AB_((c,t))(o_(i))=Average Balances of the object o_(i)    -   rate_((c,t))(o_(i))=Effective interest rate for the        corresponding balance    -   Type_(p,a)(o_(i))=Object o_(i)'s product and object attributes        as needed to identify treatment    -   R_((c,t))(type_(p,a)(o_(i)))=Rate (treatment rate) for this        object's product type, given the balance class, and tier/tenor    -   Int Inc(o_(i))=Interest Income of object o_(i)    -   COF(o_(i))=Cost of funds used by object o_(i)    -   Int Exp(o_(i))=Interest Expense for object o_(i)    -   VOF(o_(i))=Value of funds provided by object o_(i)

Then, where summations are over the possible balance attributes (state,tier) for the object,

${{IntInc}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*{{rate}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}}}$

-   -   {calculate only if object attribute doesn't exist}

${{COF}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*{R_{({{{asset}\mspace{14mu} c},t})}\left( {{type}_{p.a}\left( o_{i} \right)} \right)}}}$${{IntExp}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}*{{rate}_{({{{liability}\mspace{20mu} c},t})}\left( o_{i} \right)}}}$

-   -   {calculate only if object attribute doesn't exist}

${{VOF}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}*{R_{({c,t})}\left( {{type}_{p.a}\left( o_{i} \right)} \right)}}}$

NI Calculation Rule Type IV (83)

Let

-   -   AB_((c,t))(o_(i))=Average Balances of the object    -   rate_((c,t))(o_(i))=Effective interest rate for the        corresponding balance amounts    -   type_(p,a,b)(o_(i))=Object o_(i)'s product, object attribute,        and behavior types as needed to identify treatment rate    -   R_((c,t))(type_(p,a,b)(o_(i)))=Rate (treatment rate) for objects        of this product type, balance class, and tier/tenor    -   Int Inc(o_(i))=Interest Income of object o_(i)    -   COF(o_(i))=Cost of funds used by object o_(i)    -   Int Exp(o_(i))=Interest Expense for object o_(i)    -   VOF(o_(i))=Value of funds provided by object o_(i)

Then, where summations are over the possible balance variables (state,tier) for the object,

Int Inc(o _(i))=ΣAB_((asset c,t))(o _(i))*rate_((asset c,t))(o _(i))

-   -   {calculate only if object attribute doesn't exist}

COF(o _(i))=ΣAB_((asset c,t))(o _(i))*R_((asset,t))(type_(p,a,b)(o_(i)))

Int Exp(o _(i))=ΣAB_((liability,t))(o _(i))*rate_((liability,t))(o_(i)))

-   -   {calculate only if object attribute doesn't exist}

VOF(o_(i))=ΣAB_((liability,t))(o _(i))*R_((liability,t))(type_(p,a,b)(o_(i)))

NI Calculation Rule Type V (84)

Any Net Interest calculation that is non-iterative, canonical, andrepresents the marginal GAAP valuation of an object's balance sheetresource related revenues or expenses for each (o_(i)).

Note that in firms that are highly leveraged, the use of COF/VOFseparation leads to a significant and volatile piece of NI, the netdifference between to sum of COF and the sum of VOF (after adjusting forEOAE per the following section) and the firm's total NI. This is knownby a banker as “mismatch profits arising from the difference in tenors”(duration) of the assets and liabilities. If VOF and COF rates are basedon matched maturity of objects then the difference between the firmstotal NI and the sum of the objects is the profit arising from the firmhaving different duration of balance sheet related objects. Since thisprofit is not related to a specific object, but the combination ofobjects in the enterprise, a separate profit measure is appropriate andpossible using DPM's approach. The use of the rules above allow for anovel method of calculating funds transfer pricing, since the rules arebased on sets, the processing can be preformed in parallel. Further,since the rules are canonical this approach leads to a computationallyefficient method of calculating these types of profit values.

NI Calculations of EOAE

Since GAAP financial statement's balance sheet is based on the balancingequation Assets equals Liabilities plus Equity, NI should be adjustedfor the value of the Equity resource consumed by each Asset or Liabilityobject. Calculating Earnings on Allocated Equity as part of an object'sNI:

Four exclusive options are provided for allocating equity to objects.DPM's options are as follows:

-   -   Option 1 No calculation of EOAE.    -   Option 2 EOAE calculation based on a simple equity ratio.    -   Option 3 Equity allocation for all assets following industry        standards.    -   Option 4 Equity allocation using an economic allocation rule,        based on object cohorts and modern portfolio theory's capital        asset pricing model.

Option 1 (85) EOAE(o_(i))=0 Option 2 (86)

Let

-   -   AB_((asset,t))(o_(i))=Average Asset balances of the object        o_(i), including any allocated asset balances    -   ER=Equity Ratio    -   R_(equity)=Treatment Rate for equity        Then, EOAE(o_(i))=R_(equity)*ER*ΣAB_((asset,t))(o_(i))    -   where the summation is taken over all asset balances.

Option 3 (87) Let

-   -   Amount(o_(i))=Amount(s) associated with object ‘a’ This may be        the average asset balances of the object ‘o_(i)’ including any        allocated asset balances, or may be an object parameter, etc.    -   Wt(type(o_(i)))=Code needed to identify the weight for object o        balances, at the object-type level    -   W(Wt(type(o_(i))))=determined by the weight code    -   Cap Ratio=An appropriate risk-weighted capital ratio chosen    -   R_(equity)=Treatment Rate for equity    -   Then, EOAE(o_(i))=R _(equity)*Σ[Amount(o_(i))*W(Wt(o _(i)))*Cap        Ratio]    -   where the summation is taken over all balances of o_(i) if there        are multiple amounts.

Option 4 (88)

Let

-   -   Amount(o_(i))=An amount or amounts related to the object, such        as average balances of the object (denoted AB_((c,s,t))(o_(i))    -   Cohort(o_(i))=The cohort of objects in which object o is a        member    -   E_(cohort)(o_(i))=The equity allocation rule for the cohort of        object o.

This is a linear (two-valued) function that operates on Amount(o_(i)) ofthe form α+β*Amount(o).

-   -   R_(equity)=Treatment Rate(s) for equity for the Amount(o_(i))        value(s)    -   Then, EOAE(o_(i))=ΣR_(equity*E) _(cohort)(o)(Amount(o_(i)))    -   =ΣR_(equity)*[α+β*Amount(o_(i))]    -   where summation occurs if Amount(o_(i)) is a set of values (such        as the object and allocated balances related to the object).

4. Calculate Other Revenue for All Objects (see FIG. 9) OR CalculationRule Type I (90) Let

-   -   OR_(i)=Financial Statement Other Revenue attribute subset,    -   OR_(i)(o_(i))=The amount of OR_(i) apportioned to object o_(i),    -   O(OR_(i))=the objects that map to OR_(i).

Let M be an OR calculation method, where M is dependent upon the ORsubset under consideration. We then have the following.

If

-   -   M(OR_(i))=a “balance” attribute method.

Define

-   -   M(OR_(i))(o_(i))=An average balance method for calculating        o_(i)'s OR and

${{OR}_{i}\left( o_{i} \right)} = {{OR}_{i}*\frac{{Balance}\left( o_{i} \right)}{\sum\limits_{j}^{\;}\; \left( {{Balance}\left( o_{j} \right)} \right)}}$

-   -   where the summation is over all o_(i) in o_(i)(OR_(i)).

If

-   -   M(OR)=A “count” method for calculating o_(i)'s OR

Define

-   -   M(OR_(i))(o_(i))=1 and

${{OR}_{i}\left( o_{i} \right)} = {{OR}_{i}*\frac{1}{\left( {{{count}\left( a_{j} \right)}\mspace{14mu} {in}\mspace{14mu} {O\left( {OR}_{i} \right)}} \right)}}$

-   -   where the count is over all o_(i) in o_(i) (OR_(i)).

If

-   -   M(OR_(i))=“event count,” we can define    -   M(OR_(i))(o_(i))=Count of events in profit measurement period        for object o_(i)        and

${{OR}_{i}\left( o_{i} \right)} = {{OR}_{i}*\frac{{count}{\mspace{11mu} \;}{of}{\mspace{11mu} \;}{events}\mspace{14mu} {for}\mspace{14mu} {object}\mspace{14mu} o_{i}}{\sum\limits_{i}^{\;}\; \left( {{count}\mspace{14mu} {of}\mspace{14mu} {events}\mspace{14mu} {for}\mspace{14mu} {{object}\left( o_{j} \right)}} \right)}}$

-   -   where the summation is over all o_(i) in o_(i)(OR_(i)).

If

-   -   M(OR_(i))=“event amount”

$\mspace{79mu} {{{{DefineM}\left( {OR}_{i} \right)}\left( o_{i} \right)} = {\sum\limits_{{events}\mspace{14mu} {over}\mspace{14mu} {the}\mspace{14mu} {period}}^{\;}\; \left( {{event}\mspace{14mu} {amounts}\mspace{14mu} {for}\mspace{14mu} o_{i}} \right)}}$     and${{OR}_{i}\left( o_{i} \right)} = {{OR}_{i}*\frac{\sum\limits_{{events}\mspace{14mu} {over}\mspace{14mu} {the}\mspace{14mu} {period}}^{\;}\; \left( {{event}{\mspace{11mu} \;}{amounts}\mspace{14mu} {for}{\mspace{11mu} \;}{object}\mspace{14mu} o_{i}} \right)}{\sum\limits_{j}^{\;}\; {\sum\limits_{{events}\mspace{14mu} {over}\mspace{14mu} {the}\mspace{14mu} {period}}^{\;}\; \left( {{event}\mspace{14mu} {amounts}\mspace{14mu} {for}\mspace{14mu} {object}\mspace{14mu} o_{i}} \right)}}}$

-   -   where the summation is over all events in o_(i)(OR_(i)), and the        events are restricted to a class of event type. Then, we have        the total OR for object o given by the sum of these allocations        for all sets for which a has an association:    -   OR(o_(i))=Σ(OR_(i)(o_(i))), summing over i.

As a generalization, these formulas can be written in shorthand whereM(OR) is the corresponding function of ‘o’ above, as:

${{OR}_{i}\left( o_{i} \right)} = {{OR}_{i}*\frac{{M\left( {OR}_{i} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{a_{j} \in {A{({OR}_{i})}}}\; {{M\left( {OR}_{i} \right)}\left( o_{i} \right)}}}$and${{OR}\left( o_{i} \right)} = {\sum\limits_{i}^{o_{i} \in {O{({OR}_{i})}}}\; \left\lbrack {{OR}_{i}*\frac{{M\left( {OR}_{i} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{a_{j} \in {A{({OR}_{i})}}}\; {{M\left( {OR}_{i} \right)}\left( o_{i} \right)}}} \right\rbrack}$

OR Calculation Rule Type II (91)

The formula for OR calculation is given as follows:

Let

-   -   o_(i)=Object being considered    -   OR_(i)(o_(i))=OR apportioned to a (if any) from a set OR_(i)    -   Event(t)_(i)(o_(i))=The event reflecting the activity of object        o_(i) in the period restricted to a given event type t.    -   Amount(_(Event)(o_(i)))=An event amount    -   Rev(Evt_(i)(o_(i)))=The revenue amount associated with this        event. This is        -   assumed to be of the form

$= {\sum\limits_{typet}^{\;}\; {\sum\limits_{i}^{\;}\; \left\lbrack {{x_{i}*{{Count}\left( {{{Event}(t)}_{i}(o)} \right)}} + {\beta_{i}*{{Amt}\left( {{{Event}(t)}_{i}(o)} \right)}}} \right\rbrack}}$

where α, β are pre-entered values.OR(o_(i))=Total OR apportioned to object o_(i)

${{Then}\mspace{14mu} {{OR}\left( o_{i} \right)}} = {\sum\limits_{typet}^{\;}\; \sum\limits_{i}^{\;}}$

(Rev(Event (t)_(i)(a)) summed over all the events of o₁

-   -   +apportioned revenue as in the Type I case.

$= {{\sum\limits_{{type}\mspace{14mu} t}^{\;}\; {\sum\limits_{i}^{\;}\; \left\lbrack {{x_{i}*{{Count}\left( {{{Event}(t)}_{i}(\alpha)} \right)}} + {\beta_{i}*{{Amt}\left( {{{Event}(t)}_{i}(\alpha)} \right)}}} \right\rbrack}} + {\sum\limits_{i}^{\;}\; \left( {{OR}_{i}\left( o_{i} \right)} \right)}}$

OR Calculation Rule Type III (92) Let

-   -   o_(i)=Object being considered    -   OR_(i)(o_(i))=OR apportioned to the object (if any) from a set        OR_(i)    -   Event(t)_(i)(o_(i))=The events reflecting the activity of object        o in the period restricted to a given event type t    -   Amount(Event_(i)(o_(i)))=The event amount    -   Rev(Event_(i)(o_(i)))=The revenue amount associated with this        event.        This is assumed to be of the form

$= {\sum\limits_{{type}\mspace{14mu} t}^{\;}\; {\sum\limits_{i}^{\;}\; \left\lbrack {{x_{i}*{{Count}\left( {{{Event}(t)}_{i}(o)} \right)}} + {\beta_{i}*{{Amt}\left( {{{Event}(t)}_{i}(o)} \right)}}} \right\rbrack}}$

where α, β are pre-entered values based on event type. For completeness,α=β=0 in the event amount is null.

-   -   AM=The method of amortization=cash, SL, DB, interest    -   AM_(k){amount}=Deferral on amount, using method AM, at time k        (=0 if k>life and life=1 if cash basis is selected.)    -   AM_(now){amount}=Deferral on amount, using method M, at this        period note that this is at various points of life for various        amounts.

Let

-   -   OR(o_(i))=Total OR apportioned to object o_(i).

Then

-   -   OR(o_(i))=Amortized amounts in their first amortization period    -   +amortized amounts in their higher amortization periods    -   +amounts not amortized but apportioned from a pool as in Type I        We take this step at a time. First, consider the amounts in        their first amortization period. These are calculated as        follows, using the formula generated in Type II:

${{Then}\mspace{14mu} {{OR}\left( o_{i} \right)}} = {\sum\limits_{{type}\mspace{14mu} t}^{\;}\; {\sum\limits_{i}^{\;}\; \left( {{Rev}\left( {{{Event}(t)}_{i}\left( o_{i} \right)} \right)} \right.}}$

summed over all the transactions of object i +apportioned revenue as inthe Type I case.

$= {{\sum\limits_{{type}\mspace{14mu} t}^{\;}\; {\sum\limits_{i}^{\;}\; \left\lbrack {{x_{i}*{{Count}\left( {{{Event}(t)}_{i}\left( o_{i} \right)} \right)}} + {\beta_{i}*{{Amt}\left( {{{Event}(t)}_{i}\left( o_{i} \right)} \right)}}} \right\rbrack}} + {\sum\limits_{i}^{\;}\; \left( {{OR}_{i}\left( o_{i} \right)} \right)}}$

where the AM₁ methods vary with the event types. We can group theamounts being amortized by their amortization characteristics. For thispurpose, let Pool₁(L, M)=the pools of amounts amortizing in this periodfor the first time according to life L and amortization method M. Thenew amortizing amounts can be rewritten as follows:

${{New}\mspace{14mu} {amortized}\mspace{14mu} {amounts}} = {\sum\limits_{L,M}^{\;}\; {{Pool}_{1}\left( {L,M} \right)}}$

Similarly, define

-   -   Pool_(k)(L, M)=the pools of amounts amortizing in this period        for the k^(th) time according to life L and amortization method        M, where L≦k. N.B. any amortization calculation can be used if        the calculation can be derived using known Object Attributes.        Then, the total OR for object o_(i) in this period is computed        as follows:

$\begin{matrix}{{{OR}\left( o_{i} \right)} = {\sum\limits_{{type}\mspace{14mu} t}^{\;}\; {\sum\limits_{i}^{\;}\; \left\lbrack {{x_{i}*{{Count}\left( {{{Event}(t)}_{i}\left( o_{i} \right)} \right)}} +} \right.}}} \\{\left. {\beta_{i}*{{Amt}\left( {{{Event}(t)}_{i}\left( o_{i} \right)} \right)}} \right\rbrack + {\sum\limits_{k > 1}^{\;}\; {\sum\limits_{L,M}^{\;}\; {{Pool}_{1}\left( {L,M} \right)}}} +} \\{{\sum\limits_{i}^{\;}\; \left( {{OR}_{i}\left( o_{i} \right)} \right)}} \\{= {{\sum\limits_{k}^{\;}\; {\sum\limits_{L,M}^{\;}\; {{Pool}_{k}\left( {L,M} \right)}}} + {\sum\limits_{i}^{\;}\; \left( {{OR}_{i}\left( o_{i} \right)} \right)}}}\end{matrix}$

OR Calculation Rule Type IVI (93)

-   -   Foregone OR:    -   Let Actual OR for object o_(i)=OR_(actual)(o_(i))−CASH AMOUNTS    -   Let Expected OR for object o_(i)=OR_(expected)(o_(i))    -   Then, Foregone OR for object o_(i)=OR_(foregone)(o_(i))        -   =OR_(expected)(o_(i))−OR_(actual)(o_(i))−CASH AMOUNTS

OR Calculation Rule Type V (94)

Any Other Revenue calculation that is non-iterative, canonical, andrepresents the entire GGAP valuation of non-balance sheet resourcerelated revenues or expenses.

5. Calculate Direct Expense for All Objects (see FIG. 10) DE CalculationRule Type I (100)

None directly specified—use IE calculation rules (any type). For each IErule used in this way, substitute DE(o_(i)) for IE(o_(i)) in any IEcalculations used as DE.

DE Calculation Rule Type II (101)

Direct expense will be a variable dependent upon the object and theevent being costed. These determine the unit cost to be used and thecalculation type, along with the multiplier rule being used if externalamounts are needed. Thus, using subscripts to indicate variables used,

DE_(object, event-type =unit cost) _(event type)*(no. of events of thistype in the period) +amounts taken from an event file +costs calculatedas a percentage of Event Amount,

Where the unit costs, and revenue percentage by event type, are allentered by the user as pre-processing inputs.

${Then},{{DE}_{object} = {\sum\limits_{{event}\mspace{14mu} {types}}^{\;}\; {DE}_{{object},\; {{event} - {type}}}}}$

where the summation is over event types.

DE Calculation Rule Type III (102)

-   -   DE_(object, event-type, event-sub)    -   =unit cost_(event type)*(no. of events of this type in the        period)        -   +amounts taken from an event file        -   +costs calculated as a percentage of event amount

DE Calculation Rule Type IV (103)

Two calculations are made, each one using the above calculations,processing two independent DE attributes for each object. DE iscalculated twice for each object, allowing for comparison of plan toactual values or standard to actual values or any scenario to scenariocomparison.

DE Calculation Rule Type V (104)

Any Direct Expense calculation that is non-iterative, canonical, andrepresents the entire GGAP valuation of costs related to object orsub-object level details.

6. Calculate Provision for All Objects (see FIG. 11) P Calculation RuleType I (110)

The formula for calculating P of Object i is as follows, where PG(o_(i))denotes the P group in which o_(i) is a member:

${P\left( o_{i} \right)} = {{{PG}\left( o_{i} \right)}*{\frac{{Balance}\mspace{14mu} {of}\mspace{14mu} o_{i}}{\sum\limits_{k}^{o_{k} \in {{RPG}{(o_{i})}}}{{Balance}\mspace{14mu} o_{k}}}.}}$

P Calculation Rule Type II (111)

The formula for calculating P of o_(i) is as follows, using the samesymbols as above and RF(o_(i)) denotes the expected adjustment factorfor o_(i):

${P\left( o_{i} \right)} = {{{PG}\left( o_{i} \right)}*{\frac{{{Balance}\left( o_{i} \right)}*{{RF}\left( o_{i} \right)}}{\sum\limits_{k}^{o_{k} \in {{RPG}{(o_{i})}}}\left\lbrack {{{Balance}\left( o_{k} \right)}*{{RF}\left( o_{k} \right)}} \right\rbrack}.}}$

P Calculation Rule Type III (112)

The formula for calculating P of object “o_(i)” is as follows, wherePr(o_(i)) is a probability for object o_(i). P(o_(i))=Exposure(o_(i))*Pr(o_(i))*Expected Value Adjustment

$\left( o_{i} \right)*\frac{1}{L_{i}}$

Where L is the expected number of reporting periods during the life ofo_(i).

P Calculation Rule Type IV (113)

The addition of any of the Type I, II or III P rules applicable to anobject i.

P(o _(i))=P(o _(i))_(P Type I) +P(o _(i))_(P Type II) +P(o_(i))_(P Type III) +P(o _(i))_(P Type IV)

P Calculation Rule Type V (114)

Any Provision calculation that is non-iterative, canonical, andrepresents the entire GGAP valuation of expected costs related to futureevents, contingencies, timing effects.

7. Calculate Indirect Expense for All Objects (see FIG. 12)

Indirect expense, by its nature is not related directly to an Object,therefore apportionment techniques are used to allocate indirect expenseto an Object. Any apportionment function is allowed as long as it isderivable at the object level using ratios of attributes available atthe object level to the summation of this available attribute across allobjects receiving the apportioned expense. Examples of this type ofratio calculation (the function “F” used in the IE calculation types)are:

-   -   Ratio 1: Balance-based apportionment of IE. Define Apportionment        ratio using Current Balance of (o₁).    -   Thus, the allocation of Indirect Expense k becomes (function        F(IE_(k))(o_(i)) in IE rules below):

${{IE}_{k}*\frac{{Current}\mspace{14mu} {Balance}\mspace{14mu} {of}\mspace{14mu} o_{i}}{\sum\limits_{j}\left( {{Current}\mspace{14mu} {Balance}\mspace{14mu} {of}\mspace{11mu} o_{i}} \right)}},$

summed over all objects in grouping j.

-   -   Ratio 2: Count-based apportionment of IE    -   Thus, the allocation of Indirect Expense k becomes (function        F(IE_(k))(o_(i)) in IE rules below):

${{IE}_{k}*\frac{1}{\left( {{count}\mspace{14mu} {of}\mspace{14mu} o_{j}\mspace{14mu} {in}\mspace{14mu} {O\left( {IE}_{k} \right)}} \right)}},$

for all objects in grouping j.

-   -   Ratio 3: Revenue-based apportionment of IE Define        NI(o_(i))+OR(o_(i))=Total Revenue (using NI & OR rules above)        for (o_(i)).    -   Thus, the allocation of Indirect Expense k becomes (function        F(IE_(k))(o_(i)) in IE rules below):

${{IE}_{k}*\frac{{{NIR}\left( o_{i} \right)} + {{OR}\left( o_{i} \right)}}{\sum\limits_{j}\left( {{{NIR}\left( o_{j} \right)} + {{OR}\left( o_{j} \right)}} \right)}},$

summed over all objects in grouping j

-   -   Ratio 4: Event Count apportionment of IE Count of events for        (o_(i)) are restricted to an event type.    -   Thus, the allocation of Indirect Expense k becomes (function        F(IE_(k))(o_(i)) in IE rules below):

${IE}_{k}*\frac{{count}\mspace{14mu} {of}\mspace{14mu} {event}\mspace{14mu} {for}\mspace{14mu} {object}\mspace{14mu} o_{i}}{\sum\limits_{j}\left( {{count}\mspace{14mu} {of}\mspace{14mu} {event}\mspace{14mu} {for}\mspace{14mu} {{object}\left( o_{i} \right)}} \right)}$

-   -   for some event type, summed over all objects in grouping j.    -   Ratio 5: Transaction Amount apportionment of IE Summation of        event amounts for (o_(i)), restricted to a event type.    -   Thus, the allocation of Indirect Expense k becomes (function        F(IE_(k))(o_(i)) in IE rules below):

${{IE}_{k}*\frac{\sum\limits_{{event}\mspace{14mu} {over}\mspace{14mu} {the}\mspace{14mu} {period}}\left( {{event}\mspace{14mu} {amounts}\mspace{14mu} {for}\mspace{14mu} {{object}\left( o_{i} \right)}} \right)}{\sum\limits_{j}\; {\sum\limits_{{event}\mspace{14mu} {over}\mspace{14mu} {the}\mspace{14mu} {period}}\left( {{event}\mspace{14mu} {amounts}\mspace{14mu} {for}\mspace{14mu} {{object}\left( o_{j} \right)}} \right)}}},$

-   -   for some event type, summed over all objects in grouping j.    -   Ratio 6: Direct Expense apportionment of IE Using DE rules above        for O_(i).    -   Thus, the allocation of Indirect Expense k becomes (function        F(IE_(k))(o_(i)) in IE rules below):

${{IE}_{k}*\frac{{DE}\left( o_{i} \right)}{\sum\limits_{j}\left( {{DE}\left( o_{j} \right)} \right)}},$

summed over all objects in grouping j.

-   -   Ratio 7: Normalized (averaged) apportionment of IE    -   Thus, the allocation of Indirect Expense k becomes in IE rules        below:    -   F(IE_(k))(o_(i))=[IE using Ratio 1 F(IE_(k))(o_(i))+IE using        Ratio 3 F(IE_(k))(o_(i))+        -   +IE using Ratio 6 F(IE_(k))(o_(i))]÷3.

IE Calculation Rule Type I (120)

Indirect expense is apportioned to accounts using one of the first threeapportionment ratios above. Accordingly, using the nomenclatures above,

${{IE}\left( o_{i} \right)} = {\left( {{Total}\mspace{14mu} {IE}\mspace{14mu} {to}\mspace{14mu} {be}\mspace{14mu} {apportioned}} \right)*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{k}{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}}}$

IE Calculation Rule Type II (121)

The rules for partitioning IE and defining corresponding object groupsare based on product and event attributes. The calculation of IE(o_(i))is exactly as described above, and is given by the following, where theF's are the given apportionment ratios (any of the seven apportionmentratios are permitted for any partition O or groupings of objects).

${{IE}\left( o_{i} \right)} = {\sum\limits_{k}^{o_{i} \in {O{({IE})}}}\left( {{IE}_{k}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{o \in {O{({IE})}}}{{F\left( {IE}_{k} \right)}\left( o_{j} \right)}}} \right)}$

IE Calculation Rule Type III (122)

For Indirect Expense before deferral calculations, the process issimilar to that as listed for the Type II Level, where:

-   -   IE(o_(i))=New amounts in their first period of amortization        -   +Amounts not being amortized (cash basis)        -   +Amounts in their 2^(nd) through last amortization period.

Since we include non-amortized amounts (cash basis) to be considered asamortized with only one period, this is re-written as follows:

-   -   IE(o_(i))=New amounts in their first period of amortization        (including cash-basis)        -   +Amounts in their 2^(nd) through last amortization period.

Note that non-amortized amounts are made to fit this equation byconsidering them to be an amortization of one profit reporting periodonly. Each IE set can have a different amortization type or period,though all objects receiving a specific apportionment will share thesame amortization Rule. The new amounts to be deferred are computed,therefore, as the following:

${{Before}\mspace{14mu} {deferral}\mspace{14mu} {{IE}\left( o_{i} \right)}} = {{IE}_{k}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{o_{i} \in {O{({IE})}}}{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}}}$

added over each set IE_(k) to which o_(i) is related.

$= {\sum\limits_{k}^{o \in {O{({IE})}}}\left( {{IE}_{k}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{o_{i} \in {O{({IE})}}}{{F\left( {IE}_{k} \right)}\left( o_{j} \right)}}} \right)}$

Each of these terms may be deferred over its amortization periodaccording to any of the amortization rules (cash, straight line,declining balance, or interest amortization calculations). Sinceamortization methods may vary by set, we have the following, whereAM₁(L,R) is used to denote the amortization rule and its life:

${{IE}\left( o_{i} \right)} = {\sum\limits_{k}^{o_{i} \in {O{({IE})}}}{{{AM}_{1}\left( {L,R} \right)}\left( {{IE}_{k}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{o_{i} \in {O{({IE})}}}{{F\left( {IE}_{k} \right)}\left( o_{j} \right)}}} \right)}}$

To this is added the amounts with remaining amortization life for whichamortization was begun in earlier periods.

IE Calculation Rule Type IV (123)

Multiple combinations of the any of the above IE type rules I, II, orIII are calculated per object.

IE Calculation Rule Type V (124)

Any Indirect Expense apportionment calculation that is non-iterative,canonical, and represents the GAAP evaluation of indirect costs.

8. Calculate After-Tax Object Profit for All Objects (see FIG. 13)

Profit(o _(i))=[NIR(o _(i))+OR(o _(i))−DE(o _(i))−IE(o _(i))−P(o_(i))]*(1−EffectiveTaxRate)

where, for a two tier taxation system, Effective Tax Rate is calculatedas:

Effective Tax Rate=(1−tax rate 2)*(tax rate 1)+tax rate 2.

In the calculation of Effective Tax Rate, this formula assumes the tworates are effective rates which apply to the business conditions (notthe nominal statutory rates), and that tax rate can be deducted fromincome in the calculation of tax rate. Then,

${{Total}\mspace{14mu} {Profit}} = {\sum\limits_{i}\left\lbrack {{Profit}\left( o_{i} \right)} \right\rbrack}$

For those companies which use economic profit value calculations, theformula changes to:

-   -   Profit(o_(i))={[NIR(o_(i))+OR(o_(i))−DE(o_(i))−IE(o_(i))−P(o_(i))]*(1−EffectiveTaxRate)}−SVA(o_(i))        where    -   SVA(o_(i))=α(o_(i))+β(o_(i))*Amount(o_(i) _(i) )        and    -   α(o_(i)), β(o_(i)) are functions for a cohort of objects in        which o_(i) is a member, and Amount(o_(i)) is given by a rule        which maps o_(i) to a data value (such as balance, or allocated        equity) also defined at the cohort level. (A cohort defined here        represents a grouping of objects with similar risk        characteristics, consistent with Modern Portfolio Theory and the        Capital Asset Pricing Model.)

Shareholder Value Add (SVA) is a method financial analysts use to adjustprofit measures for risk. The idea is to subtract from the profitmeasure the cost of the equity required to support whatever object isbeing measured. Companies use this risk adjustment measure essentiallyto burden the profit for risk being taken with the equity funds used bythe object. These institutions will classify cohorts of risk and therisk cost equivalent as a percentage of account balance or allocatedequity (i.e., “Hurdles”).

DPM Example

In the airline industry a need for detailed customer profitability canbe measured using DPM. Here the fundamental object is the seat, allowingconsistent profitability values aggregated by route, aircraft type, aswell as customer dimensions using data warehousing technology. The needfor detailed customer profitability is being driven by the businessimpact analysis required to support loyalty and alliance strategicdecisions. The following is a DPM profit calculation for a seat, withreal profit measurement parameters simplified (not all aspects of trueairline business is demonstrated) and where examples of each type ofrule are utilized in DPM processing.

Flight: Air101 Date: Jul. 1, 1998 From: London To: New York Equipment:Boeing 747-400

Classes: First (20 Seats); Business (80 Seats); Economy (300 seats)

Detailed Profit Metric Processing

Step 1: Populate Database—assuming a relational database managementsystem and terminology.

-   -   Initialize database;        -   Extract, Condition, and Load the following tables: Planes,            Flights, Customers, Employees, Locations; The net balances            in the Planes entity can be maintained by use of DPM            amortization IE calculation from the prior period.    -   Extract, Condition, and Load the following tables: Financial        Transactions, Events; Manifest (occupant, seat, flight, date        attributes);    -   Extract, Condition, and Load the Financial Statement table;    -   Calculate and populate Rate table;    -   FIG. 14 shows a partial relational database schema showing the        entities and attributes used in the example's processing.        Step 2: Maintain Object Groups and Rule Maps—a database        processing routine is performed creating the following        groupings:

Class to Seat

-   -   Flight to Locations    -   Seat to Plane

For ease in understanding the rule the specifications used to populatethe database with rule parameters the processing instructions are shownbelow in the Rules. Also, most rules group by plane—the rule discussionbelow assumes this grouping without reference.

Step 3: Calculate Net Interest for Seat—Four types of NIR rules areprocessed—type I, II, III, IV for each seat. Interest rates are matchedto plane purchase date for initial plane investments, and interest ratesfor plane net capitalizable improvements are funded with a 5 year poolof rates. Plane asset balances are kept in the Plane table maintained inStep 1.2 above.

NIR Type I: Carry cost of plane asset by seat is determined.

Rule

Populated in Step 2 are:

-   -   The AAB(seat) parameter is Plane: net_orig_bal*(1/total seats on        plane)    -   The rt parameter is Treatment_rts: 25_yr_rate (maintained for        each plane) There is no need for liability rates.    -   Calculate COF(seat)=AAB(seat)*rt for all seats on flight.    -   All other attributes are NI Type I calculations results are        null. No grouping.        NIR Type II: Allocate net receivable/payable to seat for carry        cost profit adjustment. This adjusts profitability for the        impact of cash flows vs. accounting flows. This airline wants to        apportion this cost across all revenue seats based on class_wt,        a modeling parameter. A total weighted seat (tws) for the        accounting period is a modeling parameter; where the seat factor        is determined as a ratio of seat footprint to class portion of        the plane's seats revenue space. (e.g. 1^(st)=15%, 2^(nd)=25% &        3^(rd)=60% of plane's seat revenue space with each seat evenly        apportioned in class— 1/20, 1/80, 1/300 respectively, in this        case.)

Rule

Populated in Step 2 are:

-   -   The AB(seat) parameter is Financial: net_recv'ble*(1/tws)    -   The rt parameter is Treatment_rts: pool (for null plane row)    -   There is no need for liability rates.    -   Calculate COF(seat)=AB(seat)*rt*class_wt    -   Grouped by class all seats, so no_seats??? is no_seats 1st value        in the plane entity for first class seats on this plane, and so        on for 2^(nd) & 3^(rd) class seat groups. The net recv'ble        column is derived from the difference between sums of        period_amts for the receivables minus sum of payable rows for        this profit period.    -   All other attributes and NI Type II calculations results are        null.        NIR Type III: Calculate the NI value of the customer mileage        benefit payable for each seat.

Rule

Populated in Step 2 are:

-   -   The AB(seat) parameter is Customer: bene_miles*loyalty factor    -   The rt parameter is Treatment_rts: pool (for null plane row)    -   There is no need for an asset rate.    -   Calculate COF(seat)=AB(seat)*rt    -   Since a customer can only occupy one seat, no groupings are used        in this rule map.    -   All other attributes and NI Type III calculations results are        null.        NIR Type IV: Calculate the NI impact of the plane's improvements        for each seat. Upper classes interior, customer electronics and        seating are improved faster during the life of the plane.        Management strategy is for these improvements to be loyalty        program related; they are amortized quicker and hence shorter        funding requirement with less certain life. Therefore the loyal        customers to pay proportionately more of the funding costs of        improvement assets.

Rule

Populated in Step 2 are:

-   -   The AB(seat) parameter is Plane:imp_net_bal*(1/tsw)    -   The rt parameter is Treatment_rts: pool (for plane row)*        Customer: loyalty_rtng    -   There is no need for a liability rate.    -   Calculate COF(seat)=AB(seat)*rt*class_fac        -   The unique class_fac values sum to 1. The rule map is            grouped by classes (or class_fac).            All other attributes and NI Type IV calculations results are            null.            NI EOAE—Option 4: Allocate equity based on mileage benefit            and have it reduce NI by the weighted average cost of            capital for the airline.

Rule

Populated in Step 2 are:

-   -   The Amount(seat) parameter is Customer:bene_miles    -   The equity rate is 9.75%    -   Calculate EOAE(seat)=Amount(seat)*equity rate*cohort_wt    -   The cohort is based groups of each instance of loyalty_rtng and        class of seat paired. Cohort_wt is “beta” and no “alpha.”

All other attributes and EOAE calculations results are null.

Step 4: Calculate Other Revenues for each Seat—Revenue arises fromticket fares, duty free sales on board aircraft, excess baggagepenalties collected, alliance code sharing license and multiple legcustomer trips.

-   -   OR Type I: Apportion revenue from code sharing with alliance.        Apportion revenue by seat allocated to alliance passenger.

Rule

Populated in Step 2 are:

-   -   Flight:period_amt is alliance revenue per flight plus the sum of        all flight/date alliance financial transactions.    -   Calculate OR(seat)=sum of Flight:period_amt*        -   (1/no alliance seats available on flight)    -   Only for seats occupied by an alliance customer or a seat that        is empty.        OR Type II: Use Transaction table to find direct passenger        revenue by seat.

Rule

Populated in Step 2 are:

-   -   Transaction:*(amounts, seats, flight, date, transaction type)        are populated for events, financial or non-financial.    -   Calculate OR(seat)=sum of Transaction:trn_amt    -   where type=“passenger_payment” for each seat.    -   No seat grouping in rule map.        OR Type III: Apportion flight freight revenue amongst all seats,        weighted by class_wt.

Rule

-   -   Calculate OR(seat)=sum of Transaction:trn_amt*class_wt*        -   (1/(no_seats???))    -   where type “freight” for each seat.    -   Group seats by class (??? Is 1^(st), 2^(nd), 3^(rd).) Class_wt        is a normalized    -   weight for apportioning revenue amongst classes.    -   OR Type IV: Calculate the loyalty mileage benefit by seat.

Rule

-   -   Calculate Forgone OR(seat)=Flight: ???_fare—sum of        transactions:trn_amt where type=“passenger_payment” for each        seat.    -   Group by class for loyalty passenger occupied seats only.

Step 5: Calculate Direct Expenses for each Seat—Compute the direct costof using the seat. This is true for both occupied and unoccupied seats.Fuel and flight deck crew are costs of all seats, while cost of dutyfree goods sold and meals are a function of occupied seats. Some costsare a function of the plane taking off, no matter the duration of theflight (e.g., maintenance.) Some costs are a function of class, such ascabin crew expense and customer consumables.

-   -   DE Type I: Show direct cost of non-food materials consumed in        flight.

Rule

Populated in Step 2 are:

-   -   Transactions:*is populated based on these direct costs.    -   Calculate DE(seat)=Transactions:trn_amt for all flight and date        rows where type=direct_exp for each seat.    -   No grouping in rule map.        -   DE Type II: Show direct cost duty free goods sold by seat.

Rule

Populated in Step 2 are:

-   -   Transactions:*are populated based on these direct costs.    -   Calculate DE(seat)=Transactions:trn_amt for all flight and date        rows where type=duty_free for each seat.    -   No grouping in rule map.        -   DE Type III: Show direct cost of food and beverage consumed.

Rule

Populated in Step 2 are:

-   -   Transactions:*are populated based on these direct costs    -   Loading is calculated as the ratio of occupied to total class        seats by class (cl_load) using manifest table and plane        configuration values.    -   Calculate DE(seat)=Flight: catering_cost*class_wt*cl_load for        each seat.    -   Grouped by class in rule map.    -   DE Type IV: The staffing of each cabin has a maximum count with        a minimum of 1 per 50 passengers. The air deck crew must fly the        plane even if there are no passengers. Calculate DE twice, once        for based on a labor cost per seat based on total crew cost and        total seats; and calculate DE a second time with actual staff        apportioned to actual passengers.

Rule

Populated in Step 2 are:

-   -   Total crew cost (tcc1) parameter is derived using the employee        entity for all crew on flight.        Tcc=Employee:salary+bene*(Flight:schd_hours+1.5)/110    -   Total crew cost (tcc2) parameter is derived using the employee        entity for all crew on flight by class.        Tcc???=Employee:salary+bene*(Flight:schd_hours+1.5)/110 Note:        tcc=tcc1st+tcc2nd+tcc3rd    -   Calculate DE1(seat)=tcc*(1/(total no. of seats on plane))    -   Calculate DE2(seat)=tcc??*(1/(no. of seats occupied in class))        for each seat.    -   Grouped by class in rule map.        Step 6: Calculate Provisions for each Seat—The cost of expected        future events are measured here. The airline self insures        property, casualty and miscellaneous insurance premiums on a per        flight basis. And a provision for future loyalty benefit, a        function of loyalty rating, claimed is made in step 6.    -   P Type I:—The cost of the flight's insurance premium is        apportioned to each seat.

Rule

Populated in Step 2 are:

-   -   Insurance premium is maintained in the flight entity (total PG)        -   Calculate P(seat)=Flight:ins_prem*1/(total no. seats on            plane)        -   No grouping in rule map.            -   P Type II: Provision for unusual maintenance cost is                made on a function of the inverse of flight time and                takeoffs in the last 12 months.

Rule

Populated in Step 2 are:

-   -   Financial:period_amt is maintained in the financial entity by        equipment type.    -   Total flight hours and last 12 months take-offs are accumulated        each month, their product is to_hrs parameter.        -   Calculate P(seat)=Financial:period_amt*1/(total no. of seats            on plane)*(Plane:to_last12*Flight:schd_hrs)/to_hrs        -   No seat grouping in rule map.            -   P Type III: Providing for future loyalty benefit.

Rule

Populated in Step 2 are:

-   -   Customer:bene_miles is maintained using prior periods provision        for benefit miles by loyalty customer    -   A parameter estimating the usage rate by loyalty cohart called        burn factor        -   Calculate P(seat)=Flight:distance*burn(loyalty_rating)        -   Grouping by loyalty rating in rule map.            -   P Type IV: Future order cancellation reserve.

Rule

Populated in Step 2 are:

-   -   Future airplane order cancellation penalty (pen) and order size        (fut_planes) is maintained in the financial entity    -   Last 12 months loading is calculated by plane        -   Calculate P(seat)=pen*(Plane:orig_bal/fut_planes)* 1/(total            no. seats on plane)*1/24.where last 12 months loading less            than 75%.        -   Only seats on where last 12 months loading less than 75%.            Step 7: Calculate Indirect Expenses for each Seat—The            calculation of indirect expense is the final step of            detailed level profit calculation. Here remaining cost            measures that are not differentiable by seat are measured.            Fuel and oil, ground costs, regular aircraft maintenance,            overheads, and general marketing expenses are apportioned in            IE. The airline also wants to view customer profitability            loaded with the cost of unoccupied seats.    -   IE Type I: General and administrative costs are apportioned to a        seat in this rule.

Rule

Populated in Step 2 are:

-   -   The periods financial entity is populated with all of the        airlines G&A expenses (e.g., type of G&A are passenger services,        navigation licenses, rentals, miscellaneous costs, premises and        property taxes.) Allocate these costs based on seat revenue        (NI+OR.)        -   Calculate            IE(seat)=sum(Financial:trn_amt)*(sum(NI(seat))+sum(OR(seat)))/(Total            OR+NI for period)        -   No seat grouping in rule map for all Financial:type=“G&A”.            -   IE Type II: Ground location costs, airport specific and                gate expenses are apportioned by flight.

Rule

Populated in Step 2 are:

-   -   Populate all of these expenses for the period        Transactions:trn_amt with the type being the three letter        international airport identifier.    -   Calculate the number of seats flown to the flight airports        during the profit period (tfc)        -   Calculate IE(seat)=sum of Transactions:trn_amt*        -   (1/tfc)/2        -   Group transactions by pair of airports in flight row for            rule map, where only these types of expenses are included in            the tuple.            -   IE Type III: Fixed asset depreciation is allocated to a                seat.

Rule

Populated in Step 2 are:

-   -   The net plane balances (Plane:net_orig_bal & Plane:imp_net_bal)        are updated for last period's amortization or write-off.    -   The amortization factor (function of amortization) given age of        asset (for both original investment and improvements) is amfo        and amfi for each plane.    -   The tax planning estimate for taxable equivalent gross-up, due        to accelerated tax amortization, is 0.8=teg (less than 1 since a        tax credit)        -   Calculate IE(seat)=((Plane:net_orig_bal−Plane:orig_bal)*            amfo)+(Plane:imp_org_bal−Plane:imp_org_bal)*amfi))*teg*        -   (1/(total no. seats on            plane))*(Flight:schd_hrs/Plane:hrs_last_(—)12/12)        -   No grouping of seats in rule map.            -   IE Type IV: Indirect marketing expenses are apportioned                by loyalty class for customer profit aggregations and by                seat for other aggregations.

Rule

Populated in Step 2 are:

-   -   Indirect marketing expense per loyalty tier per flight is        parameterized as mef???, where ??? is 1^(st), 2^(nd), 3^(rd)        class.        -   Calculate IE(seat)=mef???*(1/(no. of occupied seats in ???))        -   Group seats by class in rule map.            -   IE Type V: For loyalty investment analysis, allocate all                DE for empty seats to occupied seats equally.    -   Populated, after all prior steps are calculated, are the total        DE less OR for each flight during the period, idef.        -   Calculate IE(seat)=idef/(total no. of occupied seats)        -   Only calculate for occupied seats.

Step 8: Calculate After-tax Seat Profit—The After-tax Profit: Rule

Populated in Step 2 are:

-   -   The effective tax rate (etr) for the airline is maintained in        the database.        -   Calculate            Profit(seat)=sum(NI(seat)+OR(seat)+DE(seat)+IE(seat)+P(seat))*(1−etr)        -   Each seat is calculated individually, no grouping is used.            -   Shareholder Value-add: The airline has determined that                some routes have a greater risk of loss due to the                volatility of loading factors. Therefore each route is                given a risk factor based on the last 12 months standard                deviation of loading.

Rule

Populated in Step 2 are:

-   -   Flight:risk_factor is maintained here    -   Economic equity per average seat parameter (Flight:risk_factor)        per route    -   Cost of capital rate is parameterized (eqrt)        -   Calculate SHV(seat)=Profit(seat)−(Flight:risk_factor*eqrt)            Each seat is calculated.

From the foregoing, it will be appreciated that DPM provides a metric ofprofit measurement consistent with GAAP at a level of detail that hasnot been accomplished using the traditional General Ledger based datawith analytical (apportioned) and/or sample survey based information.

This new ability to resolve profit measures at a detailed level withoutusing analytical models or statistical extrapolation is a capabilityneeded throughout industries that find their ability to determine amarginal decision's profit impact inadequate for optimization ofownership value. The use of rule driven and database measurementprocesses will give large scale businesses a lower cost of maintenanceand technologically scaleable tool to measure profit at a level ofprecision or resolution not possible in prior financial performancemeasurement processes.

Although a particular embodiment of the invention has been described indetail for purposes of illustration, various modifications may be madewithout departing from the spirit and scope of the invention.Accordingly, the invention is not to be limited, except as by theappended claims.

1. A process for determining object level profitability in a relationaldatabase management system, comprising the computer implemented stepsof: providing a computerized profit database having profit information;providing a relational database management system operable inassociation with the computerized profit database; preparing the profitinformation to be accessed electronically through the relationaldatabase management system, including the step of calculatingopportunity values for funds used or supplied by each object beingmeasured; establishing, in the relational database, rules for processingthe prepared information, including the steps of providing informationnecessary to select objects and performing a profit calculus; using therelational database management system to independently calculate atleast one marginal value of profit for each object being measured usingthe established rules as applied to a selected set of preparedinformation, and combining the at least one marginal value of profit tocreate a measure for object level profitability.
 2. The process of claim1, wherein the relational database comprises a structured query language(SQL).
 3. (canceled)
 4. (canceled)
 5. The process of claim 1, whereinthe step of calculating at least one marginal value of profit includesthe steps of calculating net interest (NI), other revenue (OR) anddirect expense (DE), wherein net interest (NI) is the summation ofinterest income, value of funds provided and earnings on equity fundsused less the sum of interest expense and costs of funds used, otherrevenue (OR) is a measure of profit contribution from non-interestrelated sources, and direct expense (DE) is the profit value reductiondue to marginal resource consumption by the object and indirect expense(IE) due to non-object related resource consumption.
 6. The process ofclaim 1, wherein the step of calculating at least one marginal value ofprofit includes the step of provisioning (P) for the selected set ofprepared information, provisioning being the expected profit valueadjustment for future outcomes related to the object.
 7. The process ofclaim 1, including the step of calculating a profit adjustment value bycalculating the value for indirect expense (IE) which is an apportionedprofit value adjustment for all non-object related resource consumption.8. The process of claim 7, wherein the combining step includes the stepsof adding net interest (NI) and other revenues (OR), and subtractingtherefrom direct expense (DE), provisioning (P) and indirect expense(IE).
 9. The process of claim 8, including the step of adjusting themeasure for object level profitability for taxes and/or object economicvalue.
 10. The process of claim 1, wherein the opportunity values arebased on matched maturity funds transfer pricing theory, where thevalues are market alternative supplies or uses of funds having matchedinterest and payment characteristics.
 11. The process of claim 5,wherein the Net Interest (NI) is calculated as: Int Inc(o_(i)) InterestIncome of object o_(i) −COF (o_(i))=Cost of funds used by object o_(i)−Int Exp(o_(i))=Interest Expense for object o_(i) +VOF(o_(i))=Value offunds provided by object o_(i) according to: Int Inc(o_(i))=AAB(o_(i))*rate asset (o_(i)), only if object attribute doesn't exist,COF(o_(i))=AAB(o_(i))*Rt IntExp(o_(i))=ALB(o_(i))*rate_(liability)(o_(i)), only if object attributedoesn't exist, and VOF(o_(i))=ALB(o_(i))*Rt, wherein: AAB(o_(i))=AverageAsset Balance of the object o_(i), ALB(o_(i))=Average Liability Balanceof the object o_(i), rate_(asset)(o_(i))=Effective interest rate forobject o_(i) as an asset balance, rate_(liability)(o_(i)) Effectiveinterest rate for object o_(i) as a liability balance, and Rt=Treatmentrate based on the identified treatment for the object's productattributes.
 12. The process of claim 11, including the step ofcalculating earnings on allocated equity, where the summation is takenover all asset balances, according to:EOAE(o_(i))=R_(equity)*ER*ΣAB_((asset,t))(o_(i)), wherein:AB_((asset,t))(o_(i))=Average Asset balances of the object o_(i),including any allocated asset balances, ER=Equity Ratio, andR_(equity)=Treatment Rate for equity.
 13. The process of claim 11,including the step of calculating earnings on allocated equity accordingto: EOAE(o_(i))=R_(equity)*Σ[Amount(o_(i))*W(Wt(o_(i)))*Cap Ratio],wherein: Amount(o_(i))=Amount(s) associated with object ‘a’ This may bethe average asset balances of the object ‘o_(i)’ including any allocatedasset balances, or may be an object parameter, Wt(type(o_(i)))=Codeneeded to identify the weight for object o balances, at the object-typelevel, W(Wt(type(o_(i))))=determined by the weight code, Cap Ratio=Anappropriate risk-weighted capital ratio chosen, and R_(equity)=TreatmentRate for equity.
 14. The process of claim 11, including the step ofcalculating earnings on allocated equity, according to:EOAE(o_(i))=R_(equity)*E_(cohort)(o)(Amount(o_(i))), orΣR_(equity)*[α+β*Amount(o_(i))], wherein: Amount(o_(i))=An amount oramounts related to the object, such as average balances of the object(denoted AB_((c,s,t))(o_(i)), Cohort(o_(i))=The cohort of objects inwhich object o is a member, E_(cohort)(o_(i))=The equity allocation rulefor the cohort of object o, according to a linear (two-valued) functionthat operates on Amount(o_(i)) of the form α+β*Amount(o), andR_(equity)=Treatment Rate(s) for equity for the Amount(o_(i)) value(s).15. The process of claim 5, wherein Net Interest (NI) is calculated asthe summations over the possible balance variables for the object,according to:${{+ {{VOF}\left( o_{i} \right)}} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{liability}\mspace{14mu} c},,t})}\left( o_{i} \right)}*R_{({{{liability}\mspace{14mu} c},t})}{R_{({c,t})}\left( {{pt}(o)} \right)}}}},{{wherein}\text{:}}$object attribute doesn't exist,${{{IntInc}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*{{rate}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}}}},{{calculate}\mspace{14mu} {only}\mspace{14mu} {if}}$attribute doesn't exist,${{- {{COF}\left( o_{i} \right)}} = {{{\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*R_{({{{asset}\mspace{14mu} c},t})}{R_{({c,t})}\left( {{pt}(o)} \right)}}} - {{IntExp}\left( o_{i} \right)}} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}*{{rate}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}}}}},{{only}\mspace{14mu} {if}\mspace{14mu} {object}}$AB_((c,t))(o_(i))=Average Balances of the object o_(i),rate_((c,t))(o_(i))=Effective interest rate for the correspondingbalance asset or liability, Rt(o)=Object o's product type/group asneeded to identify treatment rate, R_((c,t))(pt(o))=Rate (treatmentrate) for objects of this product type/group, given the balance class,and tier, Int Inc(o_(i))=Interest Income of object o_(i),COF(o_(i))=Cost of funds used by object o_(i), Int Exp(o_(i)) InterestExpense for object o_(i), and VOF(o_(i))=Value of funds provided byobject o_(i).
 16. The process of claim 15, including the step ofcalculating earnings on allocated equity, where the summation is takenover all asset balances, according to:EOAE(o_(i))=R_(equity)*ER*ΣAB_((asset, t))(o_(i)), wherein:AB_((asset,t))(o_(i))=Average Asset balances of the object o_(i),including any allocated asset balances, ER=Equity Ratio, andR_(equity)=Treatment Rate for equity.
 17. The process of claim 15,including the step of calculating earnings on allocated equity accordingto: EOAE(o_(i))=R_(equity)*Σ[Amount(o_(i))*W(Wt(o_(i))*Cap Ratio],wherein: Amount(o_(i)) Amount(s) associated with object ‘a’ This may bethe average asset balances of the object ‘o_(i)’ including any allocatedasset balances, or may be an object parameter, Wt(type(o_(i)))=Codeneeded to identify the weight for object o balances, at the object-typelevel, W(Wt(type(o_(i))))=determined by the weight code, Cap Ratio=Anappropriate risk-weighted capital ratio chosen, and R_(equity)=TreatmentRate for equity.
 18. The process of claim 15, including the step ofcalculating earnings on allocated equity, according to:EOAE(o_(i))=R_(equity)*E_(cohort)(o)(Amount(o_(i))), orΣR_(equity)*[α+β*Amount(o_(i))], wherein: Amount(o_(i))=An amount oramounts related to the object, such as average balances of the object(denoted AB_((c,s,t))(o_(i)), Cohort(o_(i))=The cohort of objects inwhich object o is a member, E_(cohart)(o_(i))=The equity allocation rulefor the cohort of object o, according to a linear (two-valued) functionthat operates on Amount(o_(i)) of the form α+β*Amount(o), andR_(equity)=Treatment Rate(s) for equity for the Amount(o_(i)) value(s).19. The process of claim 5, wherein Net Interest (NI) is calculated asthe summations over the possible balance attributes for the objects,according to:${{{IntInc}\left( o_{i} \right)} = {\sum\limits_{{\forall c},t}^{\;}\; {{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*{{rate}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}}}},{{only}{\mspace{11mu} \;}{if}\mspace{14mu} {object}}$attribute doesn't exist,${{- {{COF}\left( o_{i} \right)}} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{asset}\mspace{14mu} c},t})}\left( o_{i} \right)}*{R_{({{{asset}\mspace{14mu} c},t})}\left( {{type}_{p.a}\left( o_{i} \right)} \right)}}}},{{- {{IntExp}\left( o_{i} \right)}} = {\sum\limits_{{\forall c},t}^{\;}\; {{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)*{rate}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}}},{{only}{\mspace{11mu} \;}{if}\mspace{14mu} {object}}$attribute doesn't exist,${{+ {{VOF}\left( o_{i} \right)}} = {\sum\limits_{{\forall c},t}^{\;}{{{AB}_{({{{liability}\mspace{14mu} c},t})}\left( o_{i} \right)}*{R_{({c,t})}\left( {{type}_{p.a}\left( o_{i} \right)} \right)}}}},$wherein: AB_((c,t))(o_(i))=Average Balances of the objectrate_((c,t))(o_(i))=Effective interest rate for the correspondingbalance, Type_(p,a)(o_(i))=Object o_(i)'s product and object attributesas needed to identify treatment, R_((c,t))(type_(p,a)(o_(i)))=Rate(treatment rate) for this object's product type, given the balanceclass, and tier/tenor, Int Inc(o_(i))=Interest Income of object o_(i),COF(o_(i))=Cost of funds used by object o_(i), Int Exp(o_(i)) InterestExpense for object o_(i), and VOF(o_(i))=Value of funds provided byobject o_(i).
 20. The process of claim 19, including the step ofcalculating earnings on allocated equity, where the summation is takenover all asset balances, according to:EOAE(o_(i))=R_(equity)*ER*ΣAB_((asset,t))(o_(i)), wherein:AB_((asset, t))(o_(i))=Average Asset balances of the object o_(i),including any allocated asset balances, ER=Equity Ratio, andR_(equity)=Treatment Rate for equity.
 21. The process of claim 19,including the step of calculating earnings on allocated equity accordingto: EOAE(o_(i))=R_(equity)*Σ[Amount(o_(i))*W(Wt(o_(i)))*Cap Ratio],wherein: Amount(o_(i))=Amount(s) associated with object ‘a’ This may bethe average asset balances of the object ‘o_(i)’ including any allocatedasset balances, or may be an object parameter, Wt(type(o_(i)))=Codeneeded to identify the weight for object o balances, at the object-typelevel, W(Wt(type(o_(i))))=determined by the weight code, Cap Ratio=Anappropriate risk-weighted capital ratio chosen, and R_(equity)=TreatmentRate for equity.
 22. The process of claim 19, including the step ofcalculating earnings on allocated equity, according to:EOAE(o_(i))=ΣR_(equity)*E_(cohort)(o)(Amount(o_(i))), orΣR_(equity)*[α+β*Amount(o_(i))], wherein: Amount(o_(i))=An amount oramounts related to the object, such as average balances of the object(denoted AB_((c,s,t))(o_(i)), Cohort(o_(i))=The cohort of objects inwhich object o is a member, E_(cohort)(o_(i))=The equity allocation rulefor the cohort of object o, according to a linear (two-valued) functionthat operates on Amount(o_(i)) of the form α+β*Amount(o), andR_(equity)=Treatment Rate(s) for equity for the Amount(o_(i)) value(s).23. The process of claim 5, wherein Net Interest (NI) is calculatedwhere summations are over the possible balance variables for the object,according to: IntInc(o_(i))=ΣAB_((asset c,t))(o_(i))*rate_((asset c,t))(o_(i)) only ifobject attribute doesn't exist,−COF(o_(i))=ΣAB_((asset c,t))(o_(i))*R_((asset,t))(type_(p,a,b)(o_(i))),−Int Exp(o_(i))=ΣAB_((liability,t))(o_(i))*rate_((liability,t))(o_(i)))only if object attribute doesn't exist,+VOF(o_(i))=ΣAB_((liability,t))(o_(i))*R_((liability,t))(type_(p,a,b)(o_(i))),wherein: AB_((c,t))(o_(i))=Average Balances of the object,rate_((c,t))(o_(i))=Effective interest rate for the correspondingbalance amounts, type_(p,a,b)(o_(i))=Object o_(i)'s product, objectattribute, and behavior types as needed to identify treatment rate,R_((c,t))(type_(p,a,b)(o_(i)))=Rate (treatment rate) for objects of thisproduct type, balance class, and tier/tenor, Int Inc(o_(i))=interestIncome of object o_(i), COF(o_(i))=Cost of funds used by object o_(i),Int Exp(o_(i))=interest Expense for object o_(i), and VOF(o_(i))=Valueof funds provided by object o_(i).
 24. The process of claim 23,including the step of calculating earnings on allocated equity, wherethe summation is taken over all asset balances, according to:EOAE(o_(i))=R_(equity)*ER*ΣAB_((asset,t))(o_(i)), herein:AB(asset,t)(o_(i))=Average Asset balances of the object o_(i), includingany allocated asset balances, ER=Equity Ratio, and R_(equity)=TreatmentRate for equity.
 25. The process of claim 23, including the step ofcalculating earnings on allocated equity according to: EOAE(o_(i))R_(equity)*Σ[Amount(o_(i))*W(Wt(o_(i)))*Cap Ratio], wherein:Amount(o_(i))=Amount(s) associated with object ‘a’ This may be theaverage asset balances of the object ‘o_(i)’ including any allocatedasset balances, or may be an object parameter, Wt(type(o_(i)))=Codeneeded to identify the weight for object o balances, at the object-typelevel, W(Wt(type(o_(i))))=determined by the weight code, Cap Ratio=Anappropriate risk-weighted capital ratio chosen, and R_(equity)=TreatmentRate for equity.
 26. The process of claim 23, including the step ofcalculating earnings on allocated equity, according to:EOAE(o_(i))=R_(equity)*E_(cohort)(o)(Amount(o_(i))), orΣR_(equity)*[α+β*Amount(o_(i))], wherein: Amount(o_(i))=An amount oramounts related to the object, such as average balances of the object(denoted AB_((c,s,t))(o_(i)), Cohort(o_(i))=The cohort of objects inwhich object o is a member, E_(cohort)(o_(i))=The equity allocation rulefor the cohort of object o, according to a linear (two-valued) functionthat operates on Amount(o_(i)) of the form α+β*Amount(o), andR_(equity)=Treatment Rate(s) for equity for the Amount(o_(i)) value(s).27. The process of claim 7, wherein the value for indirect expense (IE)is calculated as:${{{before}\mspace{14mu} {deferral}{\mspace{11mu} \;}{{IE}\left( o_{i} \right)}} = {{IE}_{k}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{i}^{o_{i} \in {O{({IE})}}}\; {{F\left( {IE}_{k} \right)}\left( o_{i} \right)}}}}\mspace{14mu}$added  over   each  set  IE_(k)  to which o_(i) is related,$= {\sum\limits_{k}^{o \in {O{({IE})}}}\left( {{IE}_{k}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{o_{i} \in {O{({IE})}}}\; {{F\left( {IE}_{k} \right)}\left( o_{j} \right)}}} \right)}$and each of these terms is deferred over its amortization periodaccording to any of the amortization rules (cash, straight line,declining balance, or interest amortization calculations), and whereAM₁(L,R) is used to denote the amortization rule and its life:${{{IE}\left( o_{i} \right)} = {\sum\limits_{k}^{o_{i} \in {O{({IE})}}}{{{AM}_{1}\left( {L,R} \right)}\left( {{IE}_{k\;}*\frac{{F\left( {IE}_{k} \right)}\left( o_{i} \right)}{\sum\limits_{j}^{o_{i} \in {O{({IE})}}}\; {{F\left( {IE}_{k} \right)}\left( o_{j} \right)}}} \right)}}},$and the result increased by the amounts with remaining amortization lifefor which amortization was begun in earlier periods.
 28. The process ofclaim 6, provisioning (P) of each object is calculated according to:${{P\left( o_{i} \right)} = {{{PG}\left( o_{i} \right)}*\frac{{Balance}\mspace{14mu} {of}\mspace{14mu} o_{i}}{\sum\limits_{k}^{o_{k} \in {{RPG}{(o_{i})}}}\; {{Balance}\mspace{14mu} o_{k}}}}},{{wherein}\text{:}}$PG(o_(i)) denotes the P group in which o_(i) is a member.
 29. Theprocess of claim wherein provisioning (P) is calculated as:${{P\left( o_{i} \right)} = {{{PG}\left( o_{i} \right)}*\frac{{{Balance}{\mspace{14mu} \;}\left( o_{i} \right)}*{{RF}\left( o_{i} \right)}}{\sum\limits_{k}^{o_{k} \in {{RPG}{(o_{i})}}}\; \left\lbrack {{Balance}\mspace{14mu} \left( o_{k} \right)*{{RF}\left( o_{k} \right)}} \right\rbrack}}},$wherein: PG(o_(i)) denotes the P group in which o_(i) is a member, andRF(o_(i)) denotes the expected adjustment factor for o_(i).
 30. Theprocess of claim 6, wherein provisioning (P) is calculated as:P(o_(i))=Exposure (o_(i))*Pr(o_(i))*Expected Value Adjustment (o_(i))*$\frac{1}{L},$ wherein: Pr(o_(i)) is a probability for object o_(i), andL is the expected number of reporting periods during the life of
 31. Theprocess of claim 9, wherein the step of adjusting the measure for objectlevel profitability is calculated as:Profit(o _(i))={[NIR(o _(i))+OR(o _(i))−DE(o _(i))−IE(o _(i))−P(o_(i))]*(1−EffectiveTaxRate)}−SVA(o _(i)),whereSVA(o _(i))=α(o _(i))+β(o _(i))*Amount(o _(ii)), and α(o_(i)), β(o_(i))are functions for a cohort of objects in which o_(i) is a member, andAmount(o_(i)) is given by a rule which maps o_(i) to a data value (suchas balance, or allocated equity) also defined at the cohort level. 32.The process of claim 9, wherein the step of adjusting the measure forobject level profitability includes the calculation:Profit(o _(i))=[NIR(o _(i))+OR(o _(i))−DE(o _(i))−IE(o _(i))−P(o_(i))]*(1−EffectiveTaxRate) where, for a two tier taxation system,Effective Tax Rate is calculated as:Effective Tax Rate=(1−tax rate 2)*(tax rate 1)+tax rate 2.